Alongside.
Now with me, I have Citygroup Chief Financial Officer, Mark Mason. It is the Bank Services Investor Day, and your CEO Jane Fraser, made some news earlier saying that we are no longer the financial supermarket of the past.
Correct, So Mark, what a City Group in the future.
Well, first of.
All, thank you for being here today. Today was a very exciting day for us. We had an opportunity to update over one hundred and twenty investors on the progress that we've made since our Investor Day, but importantly to do a deep dive on our services businesses. And to your question, we want to be the pre eminent bank for institutions with global needs as well as a leader in global wealth and a winner in the US market
for our personal banking business. That's what we are today, and a lot of what we talked about today again was really highlighting the crown jewel of our firm, the gateway to the rest of our offering for large institutional client but also for middle market clients as well as for investors and asset managers in both that treasury and trade solutions business and our security services business.
It's interesting because to your point, even though security services has been a crown jewel, accounting for roughly half the profit recently of City Group's own entire businesses. It's been hard to explain to investors exactly what it is what it does.
Do you think City Group.
Stock would be trading higher if people understood the business prospects for it.
I think the services businesses which are comprised of that Treasury and Trade Solutions and the security services business contribute a significant amount of value to this franchise, and I hope that after today investors will realize exactly how much value that is and how much upside there is to that franchise, and we start to see it in the stock price.
Today.
You are seeing it in the stock price if you think about some of the things that have been holding City Group behind. Mike Mayo of Wells Fargo big proponent of Citycrep stock, but even he has been kind of critical here of the wealth business, calling the returns pitiously low. The question is do you have a timeline for when investors can expect returns in that business and how soon and how robust those returns can be.
You know, one of the things we talked about today is timeline. We talked about the medium term twenty twenty six, we talked about top line growth of four to five percent, and we talked about the services businesses being a significant contributor to that, both in the top line and our services business is a twenty percent return on tangible common equity.
In the wealth space, we brought in new management there and we're keenly focused on how we grow the top line and how we improve margins and how we improve returns there. That's going to involve everything from right sizing the cost structure, to increasing the banker productivity, to driving new net investment assets across that business. And we do believe that inside of this window between now and twenty twenty six, you'll start to see that value play through our financials.
Now, it's interesting you mentioned new talent over at the wealth business also at the investment banking businesses. When you look across City Group's businesses today, are you seeing yourselves bring in more and more external talent really scouring Wall Street here to pick out the best out of your rivals.
Look, the good news is that City has been a talent magnet. And when you look across Chain's leadership team, we brought in Andy sig. We brought in viz Ragabond. We recently hired Tim Ryan, so we brought in some of the best talent on the street to bring both operating chops, but also a different perspective to the institution
that we have into the execution of our strategy. These are real operators who understand these parts of the franchise and are going to bring that expertise to bear and help drive that value.
You know, a lot of your recent communication to investors kind of showed that a lot of this cost cutting has been executed on already.
Does it give you wiggle.
Room now to lean in and spend in a few places, to hire a little more in certain areas.
You know, Look, this is a multi year journey.
As you know, we're going through a significant transformation and overhaul of our infrastructure. We're addressing the consent order remediations. While we're doing that, it's not going to happen overnight. We still have considerable amount of investment to make. We
have been talking about bending that expense curve. I have given expense guidance that reflect some of the savings we expect to get from the investments that we've been making and speaking of investments, to your point, in order to grow these parts of the franchise, they will require continued investment, and as we realize savings, some of that will be available for us to fund those investments to drive that improved performance.
Speaking of new hires and speaking of performance, you said today as well that the investment banking division in this quarter you can see investment banking rising by fifty percent. Of course, it's just been a matter of weeks since a new hire from JP Morgan started to lead the investment banking business. What does this mandate across the investment.
Bank well business brand new, But again you're talking about an experienced season banker that's joined our franchise, and so as you would imagine, he's coming in and he's getting up to speed. He has a great appreciation for the unique characteristics that city brings to banking, the globality of the franchise, the breath of the clients that we serve. But he's going to have to spend some time really understanding where some of our weak points are, where some
of our advantages exist. He's going to quickly see that we have invested in areas like health, in tech, and that those parts of the franchise are well positioned to capture the upside as the wilet rebounds. But I think BUS is going to be keenly focused on how do we get greater productivity, how do we gain more share and how do we serve.
Our clients optimally.
The last point that I'll make, because this is unique to I think City, is how do we bring the breath of the franchise to bear for these clients. So that's not just M and A and ECM and DCM and the IPO activity, but how do we bring the corporate activity as well? How do we bring the TTS offering to bear for these clients?
How do we access the middle market clients.
I think this is going to bring some perspective on broader client coverage and that's how you unleash the value and the differentiating characteristics of City.
Now, one big question that remains in the investment banking universe City Group massive debt underwriter.
Of course, how do you think about.
The competition you're seeing in the private credit landscape. Are they friends, partners or enemies?
Yes, the answer is yes, right, I mean, at the end of the day, it's a growing space, it's a space that's hard to avoid. It's one that we're obviously looking at what's the best way for us to play in. I think part of that is going to be partnering with those that have the prospect for being broader clients with us, and part of it will be competing in
some aspects as well. But we're going to be smart about it, We're going to be deliberate about it, and we're going to ensure that whatever we're doing is consistent with the broader strategy.
That we've said.
I also want to be cognizant that City Group still has its own dealmaking on the table here. There's a lot of questions about when you see that that fully happen in Mexico for example, of course new leadership the Globe is watching in Mexico as well. Does it change your calculus on how you see an exit happening via sale or IPO.
Look, the new leadership is an historic event, and so we congratulate Claudio on actually being elected to president. We think that's significant. It doesn't change our strategy, It doesn't change our focus on the importance of the IPO. It doesn't change our focus on the importance of the separation which happens before the IPO, which we're keenly focused on
right now. We obviously, at the end of the day, want to do what's in the best interest of the shareholders, and we believe that getting the Mexico consumer franchise in the hands of another player is in the best interests of our shareholders, and we're focused on that.
Beyond the Mexican consumer, the US consumer, of course, is the giant whale in the room. When people are thinking about the US economy, investors are baking in where to put their chips next.
How do you think about that from the perspective of city.
Group, given you're alluding earlier today to this higher for longer rate environment and what that means.
For charge offs.
Look, I think that you know, we're all watching kind of the impact of inflation and interest rates and what that means for consumers. And we have seen the credit environment normalized for consumers, particularly on the low end of.
The FICO score.
This case shaped type of normalization that's taking place, which you have to keep in mind from a city perspective, is we tend to play on the higher end of that credit spectrum. So eighty five percent of our of our card bases with consumers with Fyco scores of six sixty or higher. Doesn't mean we don't watch it closely, but it does mean that we ensure we've got appropriate levels of reserves in place and that we're we're sticking true to, if you will, our credit profile and risk appetite.
So we feel very well positioned. There will be continued normalization, there will be continued increases in NCLs, but generally in line with the expectations given where we've come from.
So to speak, do you have.
To change anything about the way you underwrite in the future given the changing expectations around inflation and interest rates?
At this point, we're constantly looking at that. I think we've got a very robust risk appetite. We constantly look at that based on the environment that we're in. We obviously run all types of stress tests and scenarios. We do that not only for the existing book, but we do that for how we profile the new book and the clients that we want to onboard and acquire, and again we feel very very good about that. We feel
good about our understanding of those demographics. The savings profiles of our clients are spending habits, and so we feel good about kind of where we're going with what.
About industry wide?
Even though you have kind of clamped down on risk in City's own portfolio, you mentioned that you've kind of gone upstream in terms of the people you do lend to in terms of their FICO scores. What does it mean for those that are more exposed to the lower income consumer today, especially because corporation after corporation is starting to mention those stresses in their earnings reports.
And otherwise, Look, I think there's still a fair amount of uncertainty as to how this macro environment evolves, right, so whether that the interest rates or how inflation kind of stabilizes, and does that stabilize kind of fast enough for us to see cuts.
In the near term are all unknowns.
But they're also factors that influence the pressure that consumers are likely to see.
And so there's a fair amount of uncertainty there that.
People have to manage too. And again we're thoughtful about it. I think we're managing to it very carefully.
Before I let you go as well, Mark, there was a report today in the journal City Group is specific here about concerns around your living will planning at City Group. How do you address those concerns?
Yeah, you know, look, I saw the report.
I obviously can't comment on what our regulators haven't really said yet or rumors that are out there.
What I can say is that.
As I mentioned earlier, we've been making significant investments across the franchise, across regulatory reporting, across data and the thought cross resolution and recovery planning. We're constantly looking at these processes. We're looking at ways to enhance them. We're looking at ways to improve our forecasting capability to ensure that our playbooks are robust in case of a situation like that.
Importantly, we feel.
Very good about our capital, our liquidity. We've got a very strong balance sheet. But these are areas we've been investing in because we know the areas that frankly, the industry likely needs to further enhance, and we certainly want to enhance them for ourselves.
We're not far off also from expected new proposals.
Around the Basle three endgame.
Given there's been so much change and what's expected out of those final rules, what do you think will be the most different And are there certain businesses that City Group may have to tone down on given the new rules, that may not.
Be as profitable.
Yeah.
Look, the proposal is evolving as we know, and we have no idea kind of how it evolves further and where we end up. I think that, you know, I'm hopeful that we see some changes in how the.
Proposal addresses operational risk.
There were certainly some heavy weightings as it relates to equity exposures, they were certainly heaving waitings as it relates to credit, and hopefully those things continue to evolve in a way that is more thoughtful and more favorable to the industry, supporting the stability of the broader markets.
Do you think they will be more lax in those fronts by the end of it?
I hope so.
Mark, Well, we thank you very much for your time. That is Mark Mason, the CFO of City Group, of course, speaking at.
The bank's Services Investor Day
Speaking a little more about that crown jewel inside of City Group.